REQUEST FOR PROPOSAL – PHARMACY BENEFIT MANAGER AUDIT SERVICES – QUESTIONS & ANSWERS

The Questions & Answers are divided into these sections:
• General Questions
• Contract Questions
• Questions on Exhibit A - Statement of Work
• Questions on Exhibit B - Prescription Benefit Services Agreement Audit Provisions
• Questions on Exhibit D - Sample Contract Provisions

GENERAL QUESTIONS
1. Question - In what location(s) would on-site evaluations on Caremark take place?
Answer - On-site claims review, if necessary, will take place in Northbrook, IL. On-site operational review, if necessary, will take place in San Antonio, TX.

2. Question - Does LACERA have a direct Pharmacy Benefit Services Agreement with Caremark? If not can you confirm that Anthem has agreed to provide a copy of their PBM contract with Caremark for audit purposes?
Answer - No, LACERA does not have a direct Pharmacy Benefit Services Agreement with Caremark. Anthem Blue Cross has entered into an agreement with Caremark on behalf of LACERA. A copy of the PBM contract will be provided to the winning Bidder, subject to a confidentiality agreement.

3. Question - Have there been any previous prescription program audits? If so who conducted the audits?
Answer - No, there have not been any previous prescription program audits.

4. Question - How long has LACERA been with Caremark?
Answer - LACERA has been with Caremark since 1994.

5. Question - Does LACERA want the audit broken down by sub-group or active/retirees or on an aggregate basis?
Answer - On an aggregate basis. (LACERA's health program covers only retired members.)

6. Question - Is there a dedicated Caremark customer service team for LACERA? If so, where is it located?
Answer - Yes. LACERA's call center is in Knoxville, TN.

7. Question - Does LACERA send eligibility directly to Caremark or through Anthem?
Answer - Eligibility is sent through Anthem Blue Cross.

8. Question - The scope of this PBM audit appears to include 15,500 members through Anthem/CVS Caremark out of 148,500 total members. Do the remaining members have pharmacy benefits, and if so, is there a potential for additional business/audit opportunities for those lives under this RFP or through another RFP?
Answer - Yes, the remaining covered members have pharmacy benefits. Exhibit A of the RFP, Statement of Work, at I.E. allows the selected firm to make recommendations on PBM audits including scope.

9. Question - How many unique benefit designs are represented for the 15,500 members? (Benefit plans grouped under the same unique benefit design should have the same coverage, copayment, and indemnity or deductible levels.) Please provide the Evidence of Coverage for each benefit design.
Answer - There is one benefit design for the covered members. EOCs for each benefit design are included in separate PDF documents:
• Plan I (In State)
• Plan II (In State)
• Plan III (In State)

10. Question - How many claims are processed annually within each benefit and overall?
Answer - Approximately 260,000.
Question - Please provide additional information describing the Medicare Supplemental benefit plans.
Answer -There is one Medicare Supplemental benefit plan - Anthem Blue Cross Plan III. Find more information about this plan at the LACERA website, www.lacera.com, on the Brochures & Forms page. Applicable documents include:

• 2008-2009 Annual Health Care Packet - Benefits Guide
• 2008-2009 Medical Plans
• 2008-2009 Plan Comparison - Medicare
• How Your Anthem Blue Cross Plans I, II, and III Coordinate with Medicare

11. Question - We have standard bios that include the information requested on Page 7, Section F - Personnel {i, ii, iii, iv}. Will the standard bio format suffice?
Answer - Yes, as long as it includes the information requested.

12. Question - Is the firm expected to audit the interim and/or annual cost reporting generated by Caremark for the Centers for Medicare & Medicaid Services (CMS) Medicare Part D Retiree Drug Subsidy (RDS)? If so, please define the frequency of the reporting.
Answer - No.

13. Question - Is the firm expected to audit the Medicare Part D eligibility submissions to CMS for the RDS?
Answer - No.

14. Question - What Caremark location is responsible for administering LACERA's claims? Is mail order fulfilled in San Antonio?
Answer - Claim administration takes place in Northbrook, IL. Mail order is fulfilled in San Antonio, TX.

15. Question - Confirming that this an insured prescription drug program?
Answer - Yes.

16. Question - Is LACERA receiving Part D drug subsidy reimbursements from CMS? If so, has a retiree drug subsidy audit been performed?
Answer - Yes, LACERA is receiving Part D drug subsidy reimbursements from CMS. No retiree drug subsidy audit has been performed.

17. Question - Can we get a copy of LACERA pharmacy plan designs?
Answer - The bidder awarded the contract will receive copies of all relevant agreements/documents once appropriate confidentiality agreements are signed. Please see EOCs for plan design information.

18. Question - Do you have any criteria other than "technical qualifications and price"? What weighting will be placed on each of the criteria?
Answer - The criteria will be primarily based on technical qualifications. Vendor selection will be made based on best overall value, taking into consideration price, quality assurance, schedule, technical expertise, and other factors as appropriate.

19. Question - When was the last time that a PBM audit was completed? Where can we locate a copy of the previous winning proposal?
Answer - No PBM audits have been completed.

20. Question - We currently have a "terms and conditions" agreement with LACERA. Will that agreement suffice for the PBM audit work?
Answer - The winning Bidder, irrespective of its prior relationship and agreements with LACERA, will be required to enter into a separate PBM audit agreement with LACERA, like the one provide in Exhibit D.

21. Question - Is LACERA interested in renegotiating the performance guarantees based on the results of the audit?
Answer - LACERA is interested in considering any recommendations in the area of performance guarantees based on the findings of the audit.

22. Question - Which firms received this RFP?
Answer - Advanced Pharmacy Concepts, Inc.; Aon Consulting; Buck Consultants; The Burchfield Group, Inc.; Capgemini; Caribou Systems, Inc.; Claim Technologies, Inc.; Deloitte Consulting; Ernst & Young; Grant Thornton; Hewitt Associates, Inc.; KPMG; Mercer Health & Benefits; Milliman, Inc.; PricewaterhouseCoopers; Towers Perrin; Watson Wyatt Worldwide; Winkelman Management Consulting; and any other who accessed the RFP from the LACERA website.

23. Question - Have you conducted any satisfaction surveys regarding the pharmacy administration and if so, what were the results?
Answer - No.

24. Question - What is your expected budget to complete this work?
Answer - We have not formed an expected budget as we have no previous PBM Audits to guide us.

25. Question - Who performed previous PBM audits for LACERA?
Answer - No PBM audits have been performed.

26. Question - Please provide the contract amount for previous audits conducted.
Answer - No PBM audits have been conducted.

27. Question - Who is the current benefits consulting firm for LACERA?
Answer - Mercer Health & Benefits LLC

28. Question - Will LACERA provide the auditor with eligibility data to match against PBM's eligibility?
Answer - Yes.

29. Question - Does LACERA manage eligibility in-house or is there an outsourced party responsible for maintaining eligibility? Who will be responsible for sending eligibility data to us?
Answer - LACERA manages eligibility in-house and will be responsible for sending eligibility data to the auditor.

30. Question - How many board meetings or presentations of audit results are expected? Will these board meetings be in person or can they be conducted via conference calls?
Answer - We expect there to be one presentation of audit results to LACERA staff and one at a LACERA Board Meeting. The Board Meeting must be in person. The staff presentation may be conducted via conference calls but in-person is preferred.

31. Question - Are travel expenses separately billed or should they be included in the fixed fee price proposal?
Answer - Travel expenses should be included in the fixed fee price proposal.

32. Question - Are the insurance amounts highlighted in yellow required amounts?
Answer - The amounts listed are preferred but not required. If you wish to change the amounts, include the amount you can agree to in your bid, indicating that that is a term you wish to change in the agreement, with an explanation and reason for the proposed change.

CONTRACT QUESTIONS
1. Question - When was the current contract negotiated or renewed?
Answer - The current contract was renewed in December 2007 and amended on October 1, 2008.

2. Question - When does the current PBM contract expire?
Answer - The current contract expires on September 30, 2011, automatically renewed for additional one (1) year periods unless there is a notice of non-renewal.

3. Question - Is there an audit protocol section of the current PBM contract? If so, can you share it with us?
Answer - All sections pertaining to audits contained in the PBM contract are included at Exhibit B of the RFP.

4. Question - Does the contract audit language in the PBM contract specify that Caremark must provide to the auditor:
a. PA indicators
b. Formulary indicators
c. Reversed and rejected claims
Answer - All would be present in the claim file provided for auditing purposes.

5. Question - To better estimate a claim total for this audit scope, can you provide the prescription claim count for the prior year? (7/07-6/08)
Answer - 259,458.

6. Question - Does LACERA currently have a traditional (lock-in) or transparent (pass-through) pricing arrangement with the PBM?
Answer - Transparent pricing arrangement.

7. Question - Can LACERA provide any details concerning its pharmacy discount pricing arrangement (that is, traditional spread pricing or a transparent arrangement)?
Answer - Transparent pricing arrangement.

8. Question - Are you entitled to rebates from drug manufacturers as part of the contract with Caremark? If so, do you want us to audit rebates?
Answer - No.

9. Question - Are rebates calculated based on a dollar per script fee or are they formulary driven? Please provide details of rebate terminology in the contract with Caremark.
Answer - There is a rebate calculated on a per claim basis. Details of rebate terminology will be provided to the firm awarded the contract.

QUESTIONS ON EXHIBIT A - STATEMENT OF WORK
1. Question - The audit description is to conduct the audit on a "statistically appropriate" sample of claims. With software that examines far more edits and plan design processes of the PBM, we feel sample audits are not effective. Our question is whether the County allows the 100% analysis of claims and if the worth of total claim coverage would be recognized in the bid comparisons?
Answer - Yes, we will allow 100% analysis of claims and the worth of total claim coverage will be recognized in the bid comparisons.

2. Question - There is a reference to a CMS "MAC" pricing. Please clarify the meaning of CMS "MAC" pricing.
Answer - This was included in error. It will be removed from the Statement of Work by amendment.

3. Question - When referring to verifying the accuracy of the PBM's administration of the pharmacy program, does the phrase "including liability insurance requirements" imply that the contracted vendor will be asked to ensure that the PBM's liability insurance meets LACERA's standards?
Answer - No. It means that the winning Bidder will verify that liability insurance requirements in the PBM agreement are reasonable and being met by Caremark.

4. Question - Please clarify the type of data and the external source to which LACERA is referring.
Answer - Eligibility data from Anthem Blue Cross.

5. Question - Please confirm that the performance guarantees that the contracted vendor will be evaluating are for discounts and pricing or for performance measures or both.
Answer - Performance guarantees include generic mail substitution, generic retail substitution, phone average speed of answer, phone abandonment rate, mail turnaround time, mail service prescription accuracy, and participating retail pharmacy access.

6. Question - While the audit objectives and audit scope are clear, we cannot determine whether LACERA is looking for a Performance Audit, Agreed Upon Procedures or Compliance Attestation. Can you please clarify this?
Answer - LACERA is looking for an audit to address performance and compliance issues. We would also like recommendations for future action, including future audits and future audit scope.

7. Question - Verify the accuracy of Caremark's administration..., including liability insurance requirements. Does the current Caremark contract have liability insurance requirements? If not, then what are the actual requirements to use? Is the liability insurance referenced that which; Caremark has with respect to their business, Anthem has with respect to its business, or Caremark requires of its contracted pharmacies?
Answer - The current PBM agreement has liability insurance requirements that Caremark has to satisfy with respect to its business.

8. Question - Our audits are process and control audits. Section 3 - 6 are asking for validating accuracy. Should the audit firm validate that Caremark has processes and controls to address the accuracy component of items 3 - 6 or should the audit firm be validating the accuracy? Often, when items are microfilmed the original is destroyed. Validating the accuracy and authenticity of external resources requires getting the original, contacting the external resource and have them confirm the accuracy and authenticity of the information in question.
Answer - We would have the auditor review the processes and controls, and conduct testwork sufficiently adequate to validate that the controls are in place and are working.

9. Question - Our audit process does a 100% audit of the claims for financial components. With respect to eligibility an audit we verify data on file with the vendor at time of claim. Eligibility reviews can also include validating what is on file with the client. We generally do a sampling on the eligibility file that is maintained by the vendor. Does LACERA want the eligibility to be checked with what is on file with Caremark or what is on file with LACERA? Will a statically valid sampling of the eligibility suffice?
Answer - What is on file with Caremark. A statistically valid sampling of the eligibility will suffice unless 100% audit of the claims is better justified by the bidder.

10. Question - The "Statement of Work" calls for a statistically valid audit under "Audit Scope" . Most pharmacy reviews involve a 100% readjudication of claims. Is this acceptable to LACERA or have specific sampling parameters been established for this review?
Answer - 100% readjudication of claims is acceptable to LACERA. No specific sampling parameters have been established for this review.

11. Question - Is a rebate audit in scope? If so, does LACERA's contract limit the firms who can perform a rebate review?
Answer - A rebate audit is not in scope.

QUESTIONS ON EXHIBIT B - PRESCRIPTION BENEFIT SERVICES AGREEMENT AUDIT PROVISIONS
1. Question - Section 5.1 states, "…scope of claim audit shall be in accordance with the procedures set forth in Exhibit H." Could we receive a copy of this document to ensure compliance with these procedures?
Answer - The Audit Guidelines included with Exhibit B is the Exhibit H referred to in Section 5.1 of Exhibit B.

2. Question - Does this audit guideline preclude the contracted vendor from validating the objective listed under Exhibit A., Section I.D, as well as completing the scope item listed under Exhibit A, Section II.F.?
Answer - Yes. Appropriate changes to the Statement of Work will be made by amendment.

3. Question - In Section 1.3 of Exhibit B it states that Client will be charged a $5.00 per script fee for copies of mail service prescriptions, will this fee be paid by LACERA ?
Answer - LACERA will pay all fees and charges directly. Such fees and charges should be billed directly by the PBM to LACERA. There should be no charges, fees, reimbursements, or expenses of any type billed directly to the PBM by the respondent/auditor. In your response to the RFP, you should provide an estimate as to what such costs are anticipated.

4. Question - In Section 1.3 of Exhibit B it states that Client will be charged $125 per month per data fee, will this fee be paid by LACERA?
Answer - LACERA will pay all fees and charges directly. Such fees and charges should be billed directly by the PBM to LACERA. There should be no charges, fees, reimbursements, or expenses of any type billed directly to the PBM by the respondent/auditor. In your response to the RFP, you should provide an estimate as to what such costs are anticipated.

QUESTIONS ON EXHIBIT D - SAMPLE CONTRACT PROVISIONS
1. Question - Section G of the Sample Contract (Exhibit D of the RFP) includes requirements of the auditor selected for this engagement. Although we have audited Caremark and other PBMs on behalf of many public sector clients, we are not licensed to practice as CPAs in California as required by G(2) nor have we registered with the Public Company Accounting Oversight Board as required by G(4). We would also propose modifications to G(5) and G(6) to demonstrate our willingness to comply with the spirit and intent of the standard contract, but because we are not CPAs, some of the references in this paragraphs would require modification to reflect our standing as a claims auditing firm.

Will LACERA accept a "redline" in response to the RFP that would delete the above-referenced sections?
Answer - Exhibit D contains sample contract provisions. LACERA is not specifically looking for or excluding CPAs or CPA firms. We will accept a redline in response to the RFP. The contract will be negotiated to the specific firm that is selected to perform the audit.

1/14/09